Aurelia Butler

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyMarkets spent most of 2021 trading on assurances from major central banks, and the US Federal Reserve in particular, that inflation would be transitory and monetary policy would continue to remain in uber stimulus mode. That powerful conditioning fuelled the “everything rally” in markets. 2022 will be different.Markets will no longer have predictably massive liquidity injections to power them through uncharted and choppy economic waters. Crucially, investors will have to take a view on the durability and impact of the inflation surge, including the drivers of its eventual demise.For more than a decade, large-scale central bank purchases of assets boosted not just those being bought in markets but also virtually all other assets, be they financial or physical (such as housing, art and other collectibles). This was particularly the case in 2021, when cash injections from central banks were at record monthly levels.After consistently dismissing the threat of inflation, the Fed’s “better late than never” pivot on the issue is part of a general shift in global central banking towards less monetary policy stimulus. While its policy stance will remain accommodative for quite a while, the world’s most powerful central bank is now set to completely stop its asset purchases by the end of the first quarter.An increasing number of other central banks (not only in the emerging world but also in some advanced economies such as Norway and the UK) have already embarked on interest rate hiking cycles. All this comes at a time when fiscal policy in many countries is on the verge of being less stimulative, even though the Omicron coronavirus variant is damping economic growth.Having started late, the Fed faces challenges in reducing stimulus at a time when fiscal policy is less stimulative, market-based financial conditions are more volatile, strong household balances are being gradually eroded by inflation and solid consumer spending, and Omicron is fuelling inflationary pressures through new disruptions to supply chains and the availability of workers.

These challenges will not stop the Fed from increasing interest rates once it ends its asset purchases. But they do raise important questions as to the durability of the hiking cycle. Already markets are pushing against the notion that actual policy will validate the interest rate path projected by Fed officials at their December policy meeting. What is not clear is whether this would be a question of willingness or ability.The possibility of the Fed losing its nerve, as it has done repeatedly in recent years, would be viewed by markets as constructive in the short term. It would keep the central bank engaged in offsetting hits to asset prices, which is particularly supportive for equities that benefit from the “least dirty shirt phenomenon” (ie, not comprehensively attractive but better than the vast majority of other asset classes).It would be even more supportive if this coincided with an orderly reduction in inflationary pressures, still the consensus view. This is still possible — just — if the Fed does more immediately to catch up with developments on the ground.The “inability” scenario would be more problematic. Here, a system conditioned by more than a decade of floored interest rates and ample liquidity would quickly prove unable to tolerate higher rates.Tighter financial conditions, while warranted by persistent inflation, would foster a highly unfriendly combination of financial instability and lower private demand. In its extreme — that of stagflation — policies become a lot less effective at a time just when markets are dealing with the trifecta of hitherto-underpriced liquidity, credit and solvency risk.Inflation would eventually come down in this inability scenario but through a process that risks a sudden sharp drop in economic activity.As the new year unfolds, both the Fed and markets have a huge stake in inflation coming down in an orderly way. But the window of opportunity for policy to achieve this is rapidly closing. The alternative is a disorderly drop, which would involve the even bigger Fed policy error of having to be too abrupt in tightening monetary policy after being way too slow previously. In addition to the direct damage to the economy, this would probably lead to financial market accidents that amplify another round of unnecessary, and much larger, harm to livelihoods. More

Brazil’s successful auction of deep sea oil prospects last month was hailed as a sign of oil majors’ appetite for crude. But for Brazilian officials, the auction was also a watershed moment for the government’s programme of infrastructure and natural resources concessions. A previous attempt to execute the complex auction had flopped in 2019. “Our joy can’t be disguised,” said Bento Albuquerque, Brazil’s minister for mines and energy, heralding the $2bn in fees raised for the cash-strapped government and the further $35bn in investments to be made by the likes of Shell and TotalEnergies in the country’s oil and gas sector. In contrast with the government’s more vaunted plans for structural economic reforms, which have floundered for years in Congress, the programme to attract private companies to invest in — and operate — major infrastructure projects has boomed. Since the beginning of President Jair Bolsonaro’s administration in 2019, 131 concessions have been auctioned, generating more than $145bn in investments and $26bn in fees for the government. In the previous 2.5 years — since the investment programme began in 2016 — the figures were $44bn and $8bn respectively, in today’s dollars.And officials predict the expected auction of more than 150 concessions and the generation of $70bn in investments this year as investors, mostly local, put their money in. It is one of the rare bright spots in Bolsonaro’s economic agenda, generating billions in sorely needed investments in the nation’s creaking road, rail, logistics and sanitation systems.The programme is an engine for an economy that has struggled to grow for almost a decade. Despite a strong bounceback from the initial impact of the pandemic, many economists are forecasting Latin America’s largest economy will again contract this year, buffeted by the combined impact of soaring inflation and interest rates and weak consumer confidence.“The projects that will be auctioned . . . are already well advanced and we are certain that it will be the most intense year in terms of concessions under this administration,” said Tarcísio Gomes de Freitas, minister for infrastructure.Among the projects lined up for 2022 are 26 airports, 25 ports, 10 highways and nine national parks and forests. In addition, the government is expecting to host 10 auctions for mineral rights. Independent analysts point out, however, that although Brazil has attracted some international companies — notably Vinci Airports — the investments are still predominantly from local players.

“We are on the right path, but we have a long way to go and the pace is slow. We have a problem of attracting [new players]. Those who are here are used to all the uncertainties and the government insisting on shooting itself in the foot. But outsiders find it difficult to understand Brazil,” said Cláudio Frischtak, president of consultancy Inter. B.“The point is it is difficult to attract investors when you have a government that has an ideological radicalism that makes no sense for a country like Brazil,” he said, criticising the controversial rhetoric of Bolsonaro, which often spooks investors. Paulo Guedes, Brazil’s finance minister, believes these investments will propel economic growth to as much as 2 per cent in 2022, despite the growing threat from double-digit inflation, soaring interest rates and persistently high unemployment. Economists caution, however, that this year’s election — which, in October, is likely to pit Bolsonaro against leftwing former president Luiz Inácio Lula da Silva — could impact investor sentiment.“Paulo Guedes is putting too much confidence in private investment,” said Mauricio Molon, chief economist at Logus Capital in São Paulo. “The business community and market sentiment is not confident in Lula or Bolsonaro. This will put a great amount of investments on hold.”Martha Seillier, the government’s special secretary for the Investment Partnerships Programme, said that its success to date was attributable to the “structuring of the projects” and a more investor-friendly approach in a nation historically riven by bureaucracy.This contrasts with the government’s failure to pass its headline economic reforms, including a simplification of Brazil’s byzantine tax system and an administrative reform of the state. “Paulo Guedes needs to demonstrate to the market that they are acting, they are doing something and that the government is not finished, but that is not the feeling we have,” said Carlos Melo, a political scientist at Insper. “The feeling is: what more can you really expect from the Bolsonaro government?”Additional reporting by Carolina Ingizza More

(Reuters) – A U.S. jury on Monday found Theranos founder Elizabeth Holmes guilty of conspiring to defraud investors in the blood testing startup, convicting her on four of 11 counts.Holmes, 37, was accused of defrauding investors and patients with her claims of revolutionizing lab testing with a machine that used a single drop of blood. She pleaded not guilty. Here is a timeline of key events leading up to the verdict.2003 – Holmes founds Theranos, then called Real-Time Cures, after dropping out of Stanford University. Then only 19 years old, Holmes aimed to revolutionize diagnostic testing.2004 – The nascent company raises more than $6 million in funding, reaching a valuation of $30 million.2009 – Holmes’ then-boyfriend Ramesh “Sunny” Balwani joins Theranos as chief operating officer.2010 – Theranos raises a further $45 million in funding, reaching a valuation of $1 billion.2011 – Theranos begins attracting high-profile board members, including two former U.S. secretaries of state, George Shultz and Henry Kissinger.2012 – The company moves to the former Facebook (NASDAQ:FB) headquarters in Palo Alto, California.2013 – Theranos begins promoting its technology, claiming to be able to run a wide range of tests on a single drop of blood using a machine called the Edison, and enters into a partnership with Walgreens Boots Alliance (NASDAQ:WBA).2014 – Having raised more than $400 million, Theranos is valued at more than $9 billion. Holmes is recognized by Forbes as a billionaire, thanks to her stake in the company.February 2015 – An article in the Journal of the American Medical Association criticizes Theranos for failing to publish any of its research in peer-reviewed journals.July 2015 – Theranos wins U.S. Food and Drug Administration approval for a test to detect the herpes simplex 1 virus.October 2015 – The Wall Street Journal reports that Theranos uses its technology for only a small number of its tests, and that employees doubt their accuracy. The FDA subsequently releases a finding that the company used unapproved devices for tests.January 2016 – The U.S. Centers for Medicare & Medicaid Services (CMS) releases a report that one of the company’s facilities presents “jeopardy to patient health and safety.” The agency said an inspection revealed that the facility did not meet its own quality-control standards, including not properly calibrating equipment.June 2016 – Walgreens ends its relationship with Theranos.October 2016 – Partner Fund Management, which invested nearly $100 million in Theranos, sues the company for securities fraud, claiming it lied about its technology to secure the investment. The case is later settled.April 2017 – Theranos reaches a deal with CMS barring it from the blood-testing business for two years.March 2018 – The U.S. Securities and Exchange Commission charges Theranos, Holmes and Balwani with securities fraud. Holmes is stripped of her stake in and control of the company.June 2018 – Holmes and Balwani are indicted on criminal fraud charges. Both plead not guilty.September 2018 – Theranos announces that it will dissolve.March 2021 – Holmes reveals she is pregnant.August 2021 – Holmes gives birth to her child. A court filing reveals that Holmes plans to argue she was under the control of Balwani, who she says was abusive, at the time of the charged crimes. Balwani denies the allegations in court filings.September 2021 – Trial begins in San Jose, California.November 2021 – Holmes takes the stand to testify in her own defense. She denies seeking to mislead investors and patients. She says Balwani was in charge of financial models provided to investors and that he was abusive in their relationship.December 2021 – Jurors hear closing arguments from both sides.Jan. 3, 2022 – Holmes was convicted on charges of defrauding three other investors, as well as conspiring to do so. She was acquitted on three counts of defrauding patients who paid for tests from Theranos, and a related conspiracy charge. The jury could not reach a decision on three counts related to individual investors. A sentencing date was not immediately set. She faces up to 80 years in prison when sentenced by U.S. District Judge Edward Davila but would likely get a much lower sentence. More

The UK’s FTSE 100 led European equities higher after survey data indicated China’s manufacturing industry had not been significantly derailed by the Omicron coronavirus variant. The blue-chip UK share index, which is dominated by energy, resources and financial stocks that respond well to signs of robust global growth, rose 1 per cent in early dealings on Tuesday. London’s markets were closed for a public holiday on Monday. Europe’s regional Stoxx 600 equity gauge added 0.6 per cent on Tuesday, building on a record set in the previous trading session. In Asia, Tokyo’s Nikkei 225 closed 1.8 per cent higher. A purchasing managers’ index for China’s manufacturing sector, produced by Caixin and Markit, rose to a higher than expected reading of 50.9 for December. This drove the index, which collates executives’ responses to questions on topics such as hiring plans and new orders and shows expansion when it rises above 50, to its highest level since June. On Wall Street, futures indicated the S&P 500 share index would open 0.2 per cent higher after closing at a record on Monday, pulled up by gains for Apple and electric carmaker Tesla. Apple’s market capitalisation rose to $3tn on Monday, making it the first company to achieve this valuation. US Treasury prices steadied following sharp falls on Monday as traders backed out of the assets, which are sensitive to expectations of higher interest rates and inflation. The yield on the benchmark 10-year note, which moves inversely to its price, was flat at 1.623 per cent after rising more than 0.13 percentage points in the previous session. Germany’s equivalent Bund yield, which determines borrowing costs in the eurozone, was steady at minus 0.132 per cent. Brent crude, the oil benchmark, was steady at $78.93 a barrel ahead of a meeting among members of the Opec+ producer group. More

SAN JOSE, Calif. (Reuters) -A U.S. jury on Monday found Theranos founder Elizabeth Holmes guilty of conspiring to defraud investors in the blood testing startup, convicting her on four of 11 counts.Holmes was convicted on charges of defrauding three other investors, as well as conspiring to do so. She was acquitted on three counts of defrauding patients who paid for tests from Theranos, and a related conspiracy charge. The jury could not reach a decision on three counts related to individual investors. Holmes, wearing a gray suit jacket, appeared poised after the verdict was read. A sentencing date was not immediately set.Prosecutors said Holmes, 37, swindled private investors between 2010 and 2015 by convincing them that Theranos’ small machines could run a range of tests with a few drops of blood from a finger prick.She faces up to 80 years in prison when sentenced by U.S. District Judge Edward Davila but would likely get a much lower sentence. Holmes was also charged with misleading patients about the tests’ accuracy but was acquitted of those charges.Holmes is likely to appeal. The jury’s verdict came after seven days of deliberations.Holmes rose to Silicon Valley fame after founding Theranos in 2003. Her net worth was estimated at $4.5 billion by Forbes in 2015 https://www.forbes.com/sites/chasewithorn/2015/09/29/2015-forbes-400-full-list-of-americas-richest-people/?sh=50b24e03c647.Wealthy private investors including media mogul Rupert Murdoch invested millions in the company after meeting with the founder who was known for her Steve Jobs-like black turtleneck.The case has shed light on Theranos’ failed endeavor to revolutionize lab testing. The company secretly relied on conventional machines manufactured by Siemens to run patients’ tests, prosecutors said.Theranos collapsed after the Wall Street Journal published a series of articles that suggested its devices were flawed and inaccurate. Holmes was indicted in 2018 alongside Theranos’ former chief operating officer Ramesh “Sunny” Balwani.She had pleaded not guilty to nine counts of fraud and two counts of conspiracy. Balwani also has pleaded not guilty and will be tried at a later date.During the trial in San Jose, California, which began in September, jurors heard testimony from former Theranos employees who said they left the company after witnessing problems with its technology.Investors testified that Holmes made misleading claims about Theranos, such as that its machines were being used in the field by the U.S. military. And former patients told jurors that they would not have used Theranos’ tests if they had known the tests were flawed.Prosecutors said had Holmes been truthful with investors and patients, the venture never would have attracted critical funding and revenue.”She chose fraud over business failure. She chose to be dishonest,” Assistant U.S. Attorney Jeff Schenk said at the start of closing arguments. “That choice was not only callous, it was criminal.”Testifying in her own defense at trial, Holmes said she never meant to deceive anyone and that Theranos’ lab directors were in charge of test quality. In closing arguments, defense attorney Kevin Downey said the evidence did not show Holmes was motivated by a cash crunch at Theranos, but rather thought she was “building a technology that would change the world.””You know that at the first sign of trouble, crooks cash out,” but Holmes stayed, Downey said. “She went down with that ship when it went down.” More

Businesses benefited from the weakening impact of the coronavirus pandemic as they shook off some of the drag of the health crisis, though new export sales growth eased amid a rise in COVID-19 cases in South Korea.The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) in December fell to 54.3 on a seasonally adjusted basis, easing from the previous month’s 54.5.The figure, which compared with a 54.2 flash reading, still pointed to a solid improvement in operating conditions in the manufacturing sector.”Domestic markets were buoyed by a gradual recovery from the COVID-19 pandemic,” said Usamah Bhatti, economist IHS Markit, which compiles the survey.A recovery in parts supplies eased some of the strains in car manufacturing, even as high-tech chips remain in great demand around the world.But foreign orders for Japanese manufactured goods saw their growth rate soften compared to the average for the year as a whole as a sharp rise in coronavirus infections, especially in South Korea, hurt demand, the survey showed.Japan’s economy suffered from the global chip supply shortage in the third quarter of 2021, declining an annualised 3.6% in part due to a blow to output and exports in that quarter from production bottlenecks.While output is expected to rebound in the final quarter last year, manufacturers’ average lead times across that period registered their worst quarterly performance since the survey began, Bhatti said.”Though still optimistic, Japanese goods producers were wary of the continued impact of the pandemic and supply chain disruption, which resulted in confidence dipping to the softest since August,” he added. More

SAN JOSE, Calif. (Reuters) – The U.S. jury in Theranos founder Elizabeth Holmes’ fraud trial said on Monday it has reached a unanimous verdict. It will be read shortly.Prosecutors said Holmes, 37, swindled private investors between 2010 and 2015 by convincing them that Theranos’ small machines could run a range of tests with a few drops of blood from a finger prick.Holmes was also charged with misleading patients about the tests’ accuracy.Holmes rose to Silicon Valley fame after founding Theranos in 2003. Wealthy private investors including media mogul Rupert Murdoch invested millions in the company after meeting with the founder who was known for her Steve Jobs-like black turtleneck. More